Roche & Cie

Sale of equity securities held by Independent Professional Companies

An equity security is defined primarily by its holding period.

Are considered equity securities, long-term shares held by a company, allowing the latter to exercise significant influence on the company issuing the securities or exercise control.

Despite their low percentage of detention, equity securities benefit from a tax exemption on disposal.

As a reminder, long-term capital gains realized on the sale of equity securities held by companies subject to corporate tax (IS) are exempt from tax, subject to the taxation of a proportionate share costs and expenses included in the taxable income. Equity securities must be registered as such in the balance sheet.

In a recent case, a professional partnership with limited liability (SELARL) subject to corporation tax, where a doctor was the sole shareholder, acquired the securities of a clinic representing 0.88% of its capital. This clinic held herself, the entire share capital of a polyclinic where the doctor practiced his profession. The securities acquired were recorded in an account under “equity securities” and sold by the SELARL, who then generated a capital gain. The tax authority refused the exemption of this gain because it believes the shares sold were not useful to the activity of the doctor because of its low percentage of ownership, and thus did not constitute equity securities.

The State Council has however proved him wrong. It found that while the value of the securities may be assessed in terms of influence or control over the issuing company, this utility can also be established when the acquisition of shares promotes the activity of the acquirer, including the powers conferred on it.
In this case, as shareholder practitioner, the individual could pursue his activity in privileged conditions in the clinic (eg, a right of priority on the available beds). Its stake thus contributing to the exercise and development of the activity of its SELARL, even if it did not allow him to exert influence over the investee.

In other words, for th judges, the securities could be classified as equity securities eligible for the exemption.

Council of State, May 20, 2016, No. 392527